Observations on politics, news, culture and humor

The public sector albatross

You know the public sector pension problem has reached crisis level when even the NYT is reporting on it. There’s some spew-inducing stuff, like the news that the New York pension fund is administered by a politician with no investment experience and lost 29% of its value in 2008 or that the Illinois teachers’ pension scheme put a boatload into credit-default swaps on the state of California. Mulligans, anyone? The wonky money quote:

Postcrash, the horizon has condensed. According to Joshua Rauh of the Kellogg School of Management at Northwestern, assuming states make contributions at recent rates and assuming they do earn 8 percent, 20 state funds will run out of cash by 2025; Illinois, the first, will run dry in 2018.

What might budgets look like then? Pension obligations are a form of off-balance-sheet debt. As funds approach exhaustion, states will be forced to borrow to replenish them. Some have already done so. Thus, pension obligations will be converted into explicit liabilities (think of a family’s obligation to pay for grandma’s retirement being added to its mortgage). According to Rauh, if the unfinanced portion of all public pension obligations were converted to debt, total state indebtedness would soar from $1 trillion to $4.3 trillion.

But hey, at least we got good service at the BMV out of it, right?

Bonus: Veronique de Rugy at the Corner puts up a horrifying graph showing private sector job losses versus public sector job gains during the recession. America: solving the pension problem by making it worse!